Let's say you own a store with a good clientele, but sales have been slipping in recent years. A new store with new products has faster service at lower prices and is open 24/7. You're losing money. What do you do?
You consider two approaches. You could slash costs and service and hope the money saved would put you back in the black over time.
Or, you could streamline your business, improve your product and/or add new ones and give your customers better service.
As a business person who understands human nature and the nature of markets, you'll choose the second approach.
The U.S. Postal Service, understanding neither, is choosing the first.
Last year the USPS lost approximately $5 billion. It has announced drastic cuts that it hopes will result in $20 billion savings by 2015. It was once profitable, but the explosion of internet traffic (especially in correspondence and bill-paying) has sharply reduced the volume of First Class mail.
They have picked an odd way to try to turn this around: Close 700 or more post offices, cut Saturday mail deliveries, systematically jack up the price of a First Class stamp and, now, the pièce de résistance, "consolidate" distribution centers.
USPS management thinks it will save $3 billion a year by closing more than half of these centers, 252, across the country. It has begun announcing the closings. Two examples:
Humboldt County, on California's north coast, has more square miles in it that either Delaware or Rhode Island. It has one distribution center, in the county seat, Eureka. Letters addressed within the city or to nearby towns in the county are typically delivered the next day.
The USPS says it will "consolidate" this center with one in Medford, Oregon, about 150 miles to the northeast over slow mountain roads. Mail will be trucked nightly from Eureka to Medford, sorted, then that bound for Humboldt County will be trucked back to Humboldt post offices for delivery. Result: Customers will lose at least one to two days in delivery of their mail -- not to mention the wasted truck fuel and overtime of the drivers.
On the west coast of Florida, the Manasota Distribution Center will be "consolidated" with one in Fort Myers, about 60 miles away. This will mean an extra day for delivery to an area much more heavily populated than California's Humboldt County.
The inevitable result of this retrogressive action across the nation will be to drive away even more First Class mail from post offices and onto the Internet. It's elementary: Cut service, raise your prices, and make it inconvenient for your customers and you will sell less of it.
What could USPS management have done? Instead of sponsoring bicycle racing teams they could have spent some money on truly creative management thinkers to come up with out-of-the-box ideas for new services and products. And, if the thinkers came up empty-handed, management should consider radical restructuring in two ways: 1) Sell off package shipping by putting it out to bid. Fed Ex and UPS and possibly others could do the job efficiently at competitive prices -- they already do. (2) Don't expect a smaller USPS would be profitable with only First Class, Second and Bulk Mail. Instead of the U.S. Government lending it money every year (as it has) to pay its bills, subsidize it via the federal budget.
All this would take long-range thinking and plenty of courage to sell it politically, but it could be done.
Peter Hannaford was closely associated with the late President Ronald Reagan for a number of years. His latest book is Reagan's Roots: The People and Places That Shaped His Character.
